MAHWAH, N.J.--(BUSINESS WIRE)--ascena retail group, inc. (NASDAQ - ASNA) (“ascena” or the
“Company”) today reported financial results for its fiscal first quarter
ended October 28, 2017. For the first quarter of Fiscal 2018, the
Company reported GAAP earnings of $0.03 per diluted share compared to
GAAP earnings of $0.07 per diluted share in the year-ago period. The
decrease was primarily driven by the comparable sales decline of 5%. For
the first quarter of Fiscal 2018, the Company reported non-GAAP adjusted
earnings of $0.11 per diluted share compared to non-GAAP adjusted
earnings of $0.18 per diluted share in the year-ago period.

David Jaffe, Chief Executive Officer of ascena retail group, inc.,
commented, “Our first quarter adjusted earnings per share of 11 cents
was in the middle of our guidance range, but represented a disappointing
quarter. We were unable to capitalize on the improving macro traffic
environment due to fashion missteps that we cannot afford in today's
environment. We continue to deliver double-digit transaction growth in
our direct channel, but must improve our overall level of merchandising
execution. Our move to create the ascena Brands structure in August was
made specifically to strengthen product execution and comp sales
performance, and we are working aggressively to fully transition to this
new structure.”

Jaffe continued, “All of our enterprise transformation cost takeout
workstreams remain on plan, and we are currently deploying the first
phase of our new merchandise planning capabilities. We will continue to
roll-out advanced capabilities in merchandise planning and marketing
over the next 12 to 18 months, and we expect these capabilities will
provide meaningful support to both the top line and gross margin rate.”

Jaffe concluded, “Our liquidity position remains strong, and we have the
needed financial flexibility to complete the remaining components of our
transformation program, which will see the Company emerge as a much more
agile, capable competitor. We continue to evaluate all options to create
and sustain shareholder value, including new growth channels and
portfolio opportunities. While we were not pleased with this quarter's
performance on the top line, we believe the capabilities we are building
and the expense efficiencies we are driving will support significant
flow-through as we improve our overall merchandise execution.”

Fiscal First Quarter Results - Consolidated

Overview

The current and prior year results include restructuring and other
related charges incurred under the Company's Change for Growth program,
certain acquisition and integration costs, as well as non-cash purchase
accounting adjustments associated with the acquisition of ANN INC. ("ANN"),
which was completed in Fiscal 2016. A summary of year-over-year changes
in these items is presented in the notes to the unaudited condensed
consolidated financial information, which are included herein.

Net Sales and Comparable Sales

Net sales for the first quarter of Fiscal 2018 were $1.590 billion
compared to $1.678 billion in the year-ago period. The decrease in sales
reflected the impact of a 5% comparable sales decline, which was caused
primarily by a mid-single digit decline in average selling price, offset
in part by double digit transaction growth in our direct channel. The
three hurricanes which impacted the southern United States and Puerto
Rico during the first quarter negatively impacted our sales by
approximately $11 million.

The Company’s sales and comparable sales data for the fiscal first
quarter on a brand and segment basis is summarized below:

Net Sales (millions)

Comparable

Sales

Three Months Ended

October 28, 2017

October 29, 2016

Ann Taylor

(6)%

$

179.1

$

188.5

LOFT

(6)%

376.0

390.7

Total Premium Fashion

(6)%

555.1

579.2

maurices

(5)%

265.9

272.2

dressbarn

(10)%

205.4

231.9

Total Value Fashion

(7)%

471.3

504.1

Lane Bryant

(5)%

234.7

245.1

Catherines

(3)%

69.5

72.6

Total Plus Fashion

(4)%

304.2

317.7

Justice(a)

(2)%

259.1

277.4

Total Kids Fashion

(2)%

259.1

277.4

Total Company (a)

(5)%

$

1,589.7

$

1,678.4

(a)

Redemption of vouchers distributed in connection with the 2015 Justice
pricing litigation settlement increased Justice and Total
Company first quarter comp sales by approximately 200bp and 30bp,
respectively.

Gross margin

Gross margin decreased to $965 million, or 60.7% of sales, for the first
quarter of Fiscal 2018 compared to $1,014 million, or 60.4% of sales in
the year-ago period. Gross margin dollars decreased year-on-year
primarily as a result of the decline in comparable sales. Gross margin
rate was up 30 basis points as strong rate improvements at our Value
Fashion and Kids Fashion segments were mostly offset by
declines at our Premium Fashion and Plus Fashion segments.
The improvements at Value Fashion reflect lower product cost from
internally sourced product, along with the contribution of our
re-launched private label credit card program while the increase at Kids
Fashion was driven by a lower level of discounting as a result of
better product acceptance. The rate decline at our Premium Fashion
segment was primarily due to higher levels of discounting as a result of
soft product acceptance, while the decline at our Plus Fashion
segment was primarily related to markdown timing compared to the
year-ago period.

Buying, distribution, and occupancy expenses

Buying, distribution, and occupancy (“BD&O”) expenses for the first
quarter of Fiscal 2018 declined 1% to $318 million, or 20.0% of sales,
compared to $321 million, or 19.1% of sales in the year-ago period. The
decrease in BD&O expenses was primarily due to lower occupancy expenses
on a reduced store count, mainly as a result of the previously announced
fleet optimization program. Those factors were offset in part by
incremental distribution costs associated with the opening of our
Riverside, California distribution facility in March 2017. BD&O expenses
as a percentage of net sales increased by 90 basis points primarily due
to the de-leveraging effect of lower comparable sales.

Selling, general, and administration expenses

Selling, general, and administrative (“SG&A”) expenses for the first
quarter of Fiscal 2018 declined 6% to $493 million, or 31.0% of sales,
compared to $524 million, or 31.2% of sales in the year-ago period. The
decrease in SG&A expenses was primarily due to approximately $35 million
in synergies and cost reduction initiatives, mainly due to reductions in
headcount and non-merchandise procurement savings. Also contributing to
the decrease were lower store variable expenses and lower performance
based compensation. SG&A expenses as a percentage of net sales decreased
20 basis points as aggressive cost reductions offset the de-leveraging
effect of lower comparable sales.

Operating income

Operating income for the first quarter of Fiscal 2018 was $40 million
compared to operating income of $51 million in the year-ago period. The
decrease reflects the lower operating results discussed above.

Effective tax rate

For the three months ended October 28, 2017, the Company recorded a tax
provision of $7 million on pre-tax income of $14 million. The effective
tax rate for the quarter of 51.1% was higher than the statutory tax rate
primarily due to a change beginning in the first quarter of Fiscal 2018
in the accounting for the tax effects of share-based compensation
payments.

Net income and net earnings per diluted share

The Company reported Net income of $7 million, or $0.03 per diluted
share in the first quarter of Fiscal 2018, compared to Net income of $14
million in the year-ago period, or $0.07 per diluted share.

Fiscal First Quarter Balance Sheet Highlights

Cash and cash equivalents

The Company ended the first quarter of Fiscal 2018 with Cash and cash
equivalents of $303 million. Of this amount, approximately $240 million
was held outside of the U.S.

Inventories

The Company ended the first quarter of Fiscal 2018 with inventory of
$744 million, down 8% from $808 million at the end of the year-ago
period.

Capital expenditures

Capital expenditures totaled $51 million in the first quarter of Fiscal
2018, primarily to support new capabilities and strategic initiatives.

Debt

The Company ended the first quarter of Fiscal 2018 with total debt of
$1.602 billion, which included $1.574 billion remaining on the term loan
and $28 million of borrowings outstanding under the Company's revolving
credit facility.

Fiscal Year 2018 Second Quarter Outlook

Fiscal year 2018 second quarter non-GAAP loss per share is estimated in
the range of $(0.12) to $(0.07), supported by the following assumptions:

- Net sales in the range of $1.62 to $1.66 billion;

- Comparable sales in the range of down 4% to down 6%;

- Gross margin rate in the range of 55.0% to 55.5%;

- Depreciation and amortization expense in the range of $87 to $90
million;

- Operating income in the range of $(15) to $0 million;

- Interest expense of approximately $26 million; and

- Diluted share count of 196 million.

Real Estate

The Company's store information on a brand-by-brand basis for the first
quarter is as follows:

Quarter Ended October 28, 2017

Store Locations Beginning of Q1

Store Locations Opened

Store Locations Closed

Store Locations End of Q1

Ann Taylor

322

—

(2)

320

LOFT

678

5

(2)

681

maurices

1,005

12

(9)

1,008

dressbarn

779

—

(7)

772

Lane Bryant

764

3

(3)

764

Catherines

359

1

(5)

355

Justice

900

2

(8)

894

Total

4,807

23

(36)

4,794

Conference Call Information

The Company will conduct a conference call today, December 4, 2017, at
4:30 PM Eastern Time to review its first quarter Fiscal 2018 results,
followed by a question and answer session. Parties interested in
participating in this call should dial in at (877) 930-8316 prior to the
start time, the conference ID is 4079637. The call will also be
simultaneously broadcast at www.ascenaretail.com.
A recording of the call will be available shortly after its conclusion
and until December 11, 2017 by dialing (855) 859-2056, the conference ID
is 4079637, and until January 4, 2018 via the Company’s website at www.ascenaretail.com.

Non-GAAP Financial Results

As noted above, the comparability of the Company's operational results
for the periods presented herein has been affected by certain
transactions. The Company believes that non-GAAP financial measures,
when reviewed in conjunction with GAAP financial measures, can provide
more information to assist investors in evaluating current period
performance, trends and period-over-period comparative results. Non-GAAP
measures eliminate amounts that do not reflect the fundamental
performance of the Company’s businesses. Such items include costs such
as (i) acquisition and integration expenses, (ii) restructuring,
tangible asset impairments and other related charges incurred under the
Company's Change for Growth initiative, and (iii) non-cash charges
associated with purchase accounting adjustments related to the
acquisition of ANN's assets and liabilities, primarily reflecting
depreciation and amortization expense, and lease-related adjustments.
Reference is made to Note 2 of the unaudited condensed consolidated
financial information included herein for more information.

Many investors also use non-GAAP measures as a common basis for
comparing the performance of different companies. A general limitation
of non-GAAP measures is that they are not prepared in accordance with
U.S. generally accepted accounting principles and may not be comparable
to similarly titled measures of other companies due to differences in
methods of calculation and excluded items. Non-GAAP measures should be
considered in addition to, not as a substitute for, the Company’s
Operating income and Net income per common share, as well as other
measures of financial performance and liquidity reported in accordance
with U.S. generally accepted accounting principles.

Additionally, a reconciliation of the projected non-GAAP EPS, which are
forward-looking non-GAAP financial measures, to the most directly
comparable GAAP financial measures, is not provided because the Company
is unable to provide such reconciliation without unreasonable effort.
The inability to provide a reconciliation is due to the uncertainty and
inherent difficulty predicting the occurrence, the financial impact and
the periods in which the non-GAAP adjustments may be recognized. These
GAAP measures may include the impact of such items as restructuring
charges, acquisition and integration related expenses, non-cash purchase
accounting adjustments, and the tax effect of all such items. As
previously stated, the Company has historically excluded these items
from non-GAAP financial measures. The Company currently expects to
continue to exclude these items in future disclosures of non-GAAP
financial measures and may also exclude other items that may arise
(collectively, “non-GAAP adjustments”). The decisions and events that
typically lead to the recognition of non-GAAP adjustments, such as
actions under the Company's Change for Growth program, or acquisition
and integration expenses, are inherently unpredictable as to if or when
they may occur. For the same reasons, the Company is unable to address
the probable significance of the unavailable information, which could be
material to future results.

Forward-Looking Statements

Certain statements made within this press release may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to certain risks and uncertainties that could
cause actual results to differ materially. The Company does not
undertake to publicly update or review its forward-looking statements
even if experience or future changes make it clear that our projected
results expressed or implied will not be achieved. Detailed information
concerning a number of factors that could cause actual results to differ
materially from the information contained herein is readily available in
the Company’s most recent Annual Report on Form 10-K.

Operating income includes the impact of non-cash expenses
associated with the purchase accounting adjustments of ANN's
assets and liabilities to fair market value. For the three months
ended October 28, 2017 and October 29, 2016, adjustments of $4.7
and $11.0 million, respectively, primarily consist of depreciation
and amortization associated with the write-up of ANN's
customer relationships and property and equipment and other
purchase accounting adjustments, which are primarily
lease-related. These items have been excluded from the non-GAAP
adjusted operating income. Reference is made to Note 2 of the
unaudited condensed consolidated financial information included
herein for a reconciliation of operating income on a GAAP basis to
non-GAAP adjusted operating income.

Fiscal year 2018 will end on August 4, 2018 and will be a 53-week period
("Fiscal 2018") as the Company conforms its fiscal periods to the
National Retail Federation calendar. Fiscal year 2017 ended on July 29,
2017 and was a 52-week period (“Fiscal 2017”). The three months ended
October 28, 2017 and the three months ended October 29, 2016 are both
13-week periods.

The Company's Premium Fashion segment, which historically has
followed the National Retail Federation calendar, will recognize an
extra week during the second quarter of Fiscal 2018, consistent with
other retail companies already on that calendar. The Company's Value
Fashion, Plus Fashion, and Kids Fashion segments will
recognize the extra week in the fourth quarter of Fiscal 2018 due to
reporting systems constraints.

Note 2. Reconciliation of Non-GAAP Financial Measures

As noted above, the comparability of the Company's operational results
reported in accordance with U.S. generally accepted accounting
principles ("GAAP") for the periods presented herein has been affected
by certain transactions. The Company believes that the non-GAAP
financial measures presented below, when reviewed in conjunction with
GAAP financial measures, can provide more information to assist
investors in evaluating current period performance, trends and
period-over-period comparative results. Non-GAAP measures eliminate
amounts that do not reflect the fundamental performance of the Company’s
businesses. These items include costs such as (i) acquisition and
integration expenses, (ii) restructuring, tangible asset impairments and
other related charges incurred under the Company's Change for Growth
initiative, and (iii) non-cash charges associated with purchase
accounting adjustments related to the acquisition of ANN's assets
and liabilities, primarily reflecting depreciation and amortization
expense and lease-related adjustments.

Many investors also use non-GAAP measures as a common basis for
comparing the performance of different companies. A general limitation
of non-GAAP measures is that they are not prepared in accordance with
GAAP and may not be comparable to similarly titled measures of other
companies due to differences in methods of calculation and excluded
items. Non-GAAP measures should be considered in addition to, not as a
substitute for, the Company’s Operating income and Net income per common
share, as well as other measures of financial performance and liquidity
reported in accordance with GAAP.

The following tables reconcile non-GAAP financial measures to the most
directly comparable GAAP financial measures and include Net sales, BD&O
expense, SG&A expense, Operating income, Income tax provision, Net
income, Diluted net income per common share and earnings before
interest, taxes, depreciation and amortization, as adjusted ("Adjusted
EBITDA") to Net income for all periods presented.

Includes the impact of non-cash expenses associated with the
purchase accounting adjustments of ANN's assets and
liabilities to fair market value such as adjustments to
depreciation and amortization related to the write-up of ANN's
customer relationships and property and equipment and other
purchase accounting adjustments, which are primarily
lease-related. Amounts recorded in each period presented are as
follows:

Three Months Ended

October 28, 2017

October 29, 2016

Net sales

$

0.1

$

0.7

Other operating expenses

1.7

2.5

Depreciation and amortization

2.9

7.8

$

4.7

$

11.0

(b)

Primarily reflects costs related to the ANN acquisition
including severance and retention-related expenses, settlement
charges and professional fees related to a pension plan acquired
in the ANN acquisition which was terminated in the second
quarter of Fiscal 2017, and other integration costs to combine the
operations and infrastructure of the ANN business into the
Company's. Amounts recorded in each period presented are as
follows:

Three Months Ended

October 28, 2017

October 29, 2016

Other integration expenses

$

2.1

$

5.8

Severance and retention

—

2.3

ANN pension settlement

—

3.9

$

2.1

$

12.0

(c)

Reflects costs incurred under the Company's Change for Growth
program including professional fees and other related charges
incurred in connection with the identification and implementation of
the transformation initiatives associated with the program,
severance and retention-related charges incurred under the program
and charges related to the previously disclosed Fleet Optimization
program. Amounts recorded in each period presented are as follows:

Three Months Ended

October 28, 2017

October 29, 2016

Professional fees and other related charges

$

17.2

$

3.8

Severance and retention

3.9

8.1

Impairment of assets

1.1

—

$

22.2

$

11.9

(d)

Non-GAAP income tax provision is calculated based on the full year
effective tax rate for non-GAAP net income.

(e)

Reflects the impact on EPS of using 195.4 and 195.3 million weighted
average common shares for both GAAP net income per diluted common
share and adjusted net income per diluted common share for the three
months ended October 28, 2017 and October 29, 2016, respectively.
The number of weighted average basic and diluted common shares for
the three months ended October 28, 2017 are equal as the impact of
potentially dilutive stock options and restricted stock units was
anti-dilutive under the treasury stock method.